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Small Business Banking - UK - October 2019

“The success of small business banking is closely linked to the success of small businesses themselves. In this regard, Brexit poses serious challenges as many small businesses will find it more difficult to operate after Brexit, especially if the UK leaves on No Deal terms. However, Brexit also offers an opportunity for banks to prove that they can support businesses when circumstances get tough.”

– Rich Shepherd, Associate Director – Financial Services

This report examines the following issues:

  • Incumbents’ dominance is hard to break…
  • …but creating digital business finance hubs offers a compelling reason to switch
  • Free banking is a start but start-ups need to be convinced of the value of business accounts

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Table of contents

  1. Overview

    • What you need to know
      • Products covered in this Report
      • Executive Summary

          • The market
            • Small business account balances at major banks grew by 4% in 2018
              • Figure 1: Forecast of the value of small business banking deposits (current accounts and savings accounts), Fan Chart, 2014-24
            • Companies and brands
              • Big 5 banking groups dominate the market
                • Figure 2: Main business current account provider, June 2019
              • Adspend for business banking rose to £58 million in 2018/19
                • Figure 3: Total above-the-line, online display and direct mail advertising expenditure on business current accounts, business insurance, business finance and loans and business brand building, 2014/15-2018/19
              • The consumer
                • Over a third use a personal bank account to manage business finances
                  • Figure 4: Type of bank account used to manage business finances, June 2019
                • Account switching is rare in small business banking
                  • Figure 5: Business bank account tenure, June 2019
                • Online banking is the preferred channel for almost all tasks
                  • Figure 6: Preferred channels for various business banking activities, June 2019
                • Price is key but digital services are also essential in provider choice
                  • Figure 7: Important factors affecting choice of small business banking providers, June 2019
                • Business owners are split on Open Banking
                  • Figure 8: Awareness and understanding of Open Banking, June 2019
                • Most business owners bank online and are keen for integrated services
                  • Figure 9: Attitudes towards small business banking, June 2019
                • What we think
                • Issues and Insights

                  • Incumbents’ dominance is hard to break…
                    • The facts
                      • The implications
                        • …but creating digital business finance hubs offers a compelling reason to switch
                          • The facts
                            • The implications
                              • Free banking is a start but start-ups need to be convinced of the value of business accounts
                                • The facts
                                  • The implications
                                  • The Market – What You Need to Know

                                    • Small business account balances at major banks grew by 4% in 2018
                                      • Major banks advanced £7.7 billion in small business loans in 2018
                                        • The small business population dipped but turnover increased in 2018
                                          • Making Tax Digital seeks to eliminate lost tax revenue
                                          • Market Size and Forecast

                                            • Volume of small business bank accounts dipped in 2018
                                              • Figure 10: Volume of small business current accounts, in credit and overdrawn, 2014-18
                                            • Balances continue to increase but growth has slowed
                                              • Figure 11: Volume and value of small business current and savings accounts, 2014-18
                                            • Steady growth is forecast for the next five years but Brexit will be key
                                              • Figure 12: Forecast of the value of small business banking deposits (current accounts and savings accounts), Fan Chart, 2014-24
                                              • Figure 13: Forecast of the value of small business banking deposits (current accounts and savings accounts), 2014-24
                                            • Forecast methodology
                                            • Small Business Lending

                                              • Major banks advanced £7.7 billion in small business loans in 2018
                                                • Figure 14: Annual value of gross loans advanced and overdraft facilities approved for small businesses, 2014-18
                                              • Growth in overdraft use could suggest rising difficulties
                                                • Figure 15: Annual number of loans and overdrafts approved for small businesses, 2014-18
                                            • Market Drivers

                                              • Small businesses make up almost the entire private sector…
                                                • Figure 16: UK business population, by business size, 2014-18
                                              • …accounting for over a third of turnover
                                                • Figure 17: Share of UK private sector turnover, by size of business, 2016-18
                                              • Self-employment nears 5 million workers
                                                • Figure 18: Number of self-employed workers in the UK, January 2013-June 2019
                                              • Most businesses are getting by pretty well
                                                • Figure 19: Current financial situation of the business, June 2019
                                            • Regulatory and Legislative Changes

                                              • Ring-fencing takes effect
                                                • Firms now required to submit VAT returns digitally
                                                  • Treasury rejects call for SME lending regulation
                                                    • British Business Bank expands its ENABLE Guarantee programme
                                                      • Government launches British Finance Council to assist SMEs after Brexit
                                                      • Companies and Brands – What You Need to Know

                                                        • Big 5 banking groups dominate the market
                                                          • RBS Alternative Remedies Package funds awarded to 15 providers
                                                            • Brands take conflicting approaches to SME branch services
                                                              • Adspend for business banking rose to £58 million in 2018/19
                                                              • Market Share

                                                                • Big 5 banking groups dominate the market…
                                                                  • …but scope for challengers to increase their share
                                                                    • Figure 20: Main business current account provider, by type of account held, June 2019
                                                                • Company Profiles

                                                                  • Barclays
                                                                    • Profile
                                                                      • Recent activity
                                                                        • HSBC
                                                                          • Profile
                                                                            • Recent activity
                                                                              • Lloyds Banking Group
                                                                                • Profile
                                                                                  • Recent activity
                                                                                    • RBS Group
                                                                                      • Profile
                                                                                        • Recent activity
                                                                                          • Santander
                                                                                            • Profile
                                                                                              • Recent activity
                                                                                              • Competitive Strategies

                                                                                                • Business Banking Hubs trialled in test of the future of branches…
                                                                                                  • …as challengers look to put branches at the heart of new strategies
                                                                                                    • Nationwide to train 7,000 branch workers in business banking as it enters the market
                                                                                                      • Co-operative Bank looks to grow market share with long free banking offer
                                                                                                        • Virgin Money to support SME customers with 300 relationship managers
                                                                                                          • Starling and Tide look back to move forward with online banking
                                                                                                          • Advertising and Marketing Activity

                                                                                                            • A steep rise in adspend…
                                                                                                              • Figure 21: Total above-the-line, online display and direct mail advertising expenditure on business current accounts, business insurance, business finance and loans and business brand building, 2014/15-2018/19
                                                                                                            • …largely thanks to WorldFirst and Funding Circle
                                                                                                              • Figure 22: Top 10 spenders on above-the-line, online display and direct mail advertising expenditure on business current accounts, business insurance, business finance and loans and business brand building, 2016/17-2018/19
                                                                                                            • Adspend is split between TV, digital and radio
                                                                                                              • Figure 23: Total above-the-line, online display and direct mail advertising expenditure on business current accounts, business insurance, business finance and loans and business brand building, by media type, 2018/19
                                                                                                            • Nielsen Ad Intel coverage
                                                                                                            • The Consumer – What You Need to Know

                                                                                                              • Over a third use a personal bank account to manage business finances
                                                                                                                • Online banking is the preferred channel for almost all tasks
                                                                                                                  • Price is key but digital services are also essential in provider choice
                                                                                                                    • Business owners are split on Open Banking
                                                                                                                      • Most business owners bank online and are keen for integrated services
                                                                                                                      • Business Bank Account Ownership and Tenure

                                                                                                                        • Over a third use a personal bank account to manage business finances
                                                                                                                          • Figure 24: Type of bank account used to manage business finances, June 2019
                                                                                                                        • Larger firms are more likely to use specialist business accounts...
                                                                                                                          • Figure 25: Type of bank account used to manage business finances, by number of employees, June 2019
                                                                                                                        • …while younger firms are more likely to use personal accounts
                                                                                                                          • Figure 26: Type of bank account used to manage business finances, by age of business, June 2019
                                                                                                                        • Current account switching is rare among small business owners
                                                                                                                          • Figure 27: Business bank account tenure, June 2019
                                                                                                                      • Channel Preferences

                                                                                                                        • Online banking is the preferred channel for almost all tasks
                                                                                                                          • Figure 28: Preferred channels for various business banking activities, June 2019
                                                                                                                        • Branches are still favoured for advice, but only just
                                                                                                                          • Firms’ interactions with financial products change over time
                                                                                                                            • Figure 29: Preferred channels to “Find out more about particular business banking products”, by age of business, June 2019
                                                                                                                        • Factors Affecting Choice of Provider

                                                                                                                          • Digital channels have become key in choosing financial providers
                                                                                                                            • Figure 30: Important factors affecting choice of small business banking providers, June 2019
                                                                                                                          • Professional recommendations are influential for larger firms
                                                                                                                            • Figure 31: Important factors affecting choice of small business banking providers, by number of employees, June 2019
                                                                                                                          • Branches are still highly valued
                                                                                                                            • Major banks can leverage experience of personal customers
                                                                                                                            • Open Banking and Small Business Banking

                                                                                                                              • Business owners are split on Open Banking
                                                                                                                                • Figure 32: Awareness and understanding of Open Banking, June 2019
                                                                                                                              • Smaller firms are at risk of missing out
                                                                                                                                • Figure 33: Awareness and understanding of Open Banking, by number of employees, June 2019
                                                                                                                            • Attitudes towards Small Business Banking

                                                                                                                              • Integrated tax services hold strong appeal…
                                                                                                                                • Figure 34: Attitudes towards small business banking, June 2019
                                                                                                                              • …but business owners want providers to stick to their specialities
                                                                                                                                • Attitudes towards innovation are polarised
                                                                                                                                • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                                    • Abbreviations
                                                                                                                                      • Consumer research methodology
                                                                                                                                      • Appendix – Market Size and Forecast

                                                                                                                                          • Figure 35: Best- and worst-case forecasts for the value of small business banking deposits (current accounts and savings accounts), 2019-24
                                                                                                                                        • Forecast methodology

                                                                                                                                        Small Business Banking - UK - October 2019

                                                                                                                                        £1,995.00 (Excl.Tax)